Deliveries to Singapore in June will cost an average $1.25 a metric ton more than July contracts in the second half of this month, according to the median estimate of five traders surveyed by Bloomberg this week. The difference was $4.50 on May 1, the most since September 2012, and averaged $2.36 in the first half of the month.

The fading premium shows how Europe’s recession and China’s economic slowdown is hurting the market for a commodity used to power the ships that carry 90 percent of the world’s traded goods. Europe’s exports to Asia are poised to rise to the highest in four months as it struggles to emerge from a recession that’s sapping local demand. At the same time, Chinese refineries that use the fuel to make more valuable gasoline and diesel are cutting purchases as growth slows.

“It doesn’t get more attractive from here,” Miswin Mahesh, a London-based oil analyst at Barclays Plc, said by phone on May 10. “Any time there is a spike in fuel oil, we continue to say fade the rally.”

The swap for 180-centistoke fuel oil for earliest delivery cost $609.75 a ton today, bringing its decline this year to 0.8 percent, according to data from PVM Oil Associates Ltd., a London-based broker. The contract for the fuel in two months cost $608.25, down 1.7 percent this year.

Traders’ Outlook

Four traders surveyed by Bloomberg forecast the premium between the first- and second-month contracts will range from parity to $1.50 in the second half of May. One predicted it would widen to about $7, citing a shortage of the material needed to blend with it to make shipping fuel, or bunker. It was at $1.50 a ton at 2:29 p.m. in Singapore.

Deliveries from Western countries to Asia this month may rise to 4.4 million tons, up from 3.5 million in April, according to data compiled by Bloomberg. That’s the most since January. Shipments from Europe increased to 2.5 million tons, or 57 percent of the total, compared with 1.3 million, or 38 percent in April.

The euro-area economy shrank 0.2 percent in the three months ended March, extending the region’s recession to a record sixth quarter. That followed a 0.6 percent decline in the previous three months, the European Union’s statistics office in Luxembourg said May 15. Brent crude, the North Sea benchmark for more than half of the world’s oil, fell about 6 percent this year, to trade at about $105 today, on concern Europe’s fuel demand will drop.

Oil consumption in European countries that are members of the Organization for Economic Cooperation and Development will fall 2.4 percent to 13.4 million barrels a day this year, according data from the International Energy Agency in Paris.

China’s Teapots

At the same time, fuel oil demand from refineries in eastern China known as teapots that import the oil to make motor fuel has been weakening as the country’s economic growth slows, according to C1 Energy, a Shanghai-based commodity researcher.

“Chinese teapots are not buying at the moment because they need to destock both fuel oil as feedstock and diesel as products amid low run rates,” Sophia Ma, a Guangzhou-based oil analyst at C1 Energy, said by phone. “We are not too optimistic about the outlook.”

Growth in China, the world’s second-largest economy, slowed to 7.7 percent in the first quarter, down from 7.9 percent in the previous three months. That drove its stockpiles of diesel, which fuels trucks and machineries, to the highest in almost a year in February and March, according to data released by Xinhua News Agency’s China Oil, Gas and Petrochemicals newsletter.

China’s teapot refineries cut operating rates to 24 percent on April 18, the lowest in at least three years, according to Oilchem.net, an industry website. The run rate rose to 29.1 percent as of May 2.

Shipping Fuel

Shipping fuel sales in Singapore, the world’s largest vessel-refueling port, fell 1.6 percent to 13.9 million tons in the first four months compared with a year earlier, data from the city-state’s maritime authority show. April sales rose to 3.6 million tons from 3.4 million in March.

Demand from ship owners is falling this month because purchases in April covered their needs, according to Oliver Imaizumi, a senior manager at Petro Summit Pte in Singapore.

“Demand right now is stable, but not that much compared to last month,” Imaizumi said by telephone from Singapore, “Ship owners took the bunker in April so they don’t really need to top up volume in May.”

Singapore Stockpiles

Singapore prices for 380-centistoke fuel oil, the grade used for bunker, fell to $596 a ton on May 15, the lowest in more than five months, according to data compiled by Bloomberg. The price has slid 10 percent from the high of $663.50 in February. It averaged $626.53 this year.

Residual-fuel inventories in Singapore rose for a third week to the highest level in more than five months, according to a unit of the Ministry of Trade and Industry.

Inventories including fuel oil and low-sulfur waxy residue and excluding bitumen gained 2.63 million barrels, or 13 percent, to 22.3 million in the seven days to May 15, International Enterprise Singapore said in an e-mailed statement. That’s the highest since the week ended Dec. 5.

“The market has been strong mainly because of lack of blending stocks,” said Jit Yang Lim, a Singapore-based analyst with KBC Energy Economics. “With a lot of shipments coming in with all the quality fuel oil, that should ease the cracks in the coming month.”

Bloomberg

China’s Consumption of Gold and Acquisition of Gold Mining Stocks Continues

GoldandSilverNow

FT

photo credit: MIKE CLARKE/AFP/Getty Images

India Starts Tipping

So what about the country that—together with China—is responsible for 76 percent of the world’s planned 1.4 trillion watts of coal-fired power plants and 90 percent of the projected growth in global coal demand to 2016; that plans (implausibly) to build a coal-fired plant fleet twice as big as America’s; and that will ultimately surpass China in population, though one-fourth of its people still lack electricity?

India’s power generation is still mainly coal-fired, but India’s coal is only abundant, not cheap. Chronic coal-sector and logistics challenges have created growing import dependence (as in China, which became a net importer in 2009). That helped the six countries that control four-fifths of global coal exports to gain the market power to boost prices, so they did. Rising coal imports and a weakening currency gave India a macroeconomic headache and power producers a financial migraine.

Coal prices 2–3 times assumptions imposed a grave price/cost squeeze on two of the world’s biggest coal plants—4-GW projects owned by the largest generating firm (Tata Power, part of Tata Group that’s nearly 5 percent of India’s GDP) and by Reliance. Many plants can’t even get enough coal, exacerbating electricity shortages, but the government doesn’t want to raise electricity prices, so the dominoes are falling. In December 2011, Infrastructure Development Finance Company stopped financing new coal plants. In February 2012, the Reserve Bank of India said it wouldn’t help banks that got in trouble on new coal-plant loans. (See: “Coal Power Loses Its Luster as Costs Rise.”) Financing dried up. Three weeks later, Tata announced its investment emphasis had shifted from coal projects to wind and solar. Led by four of India’s richest families, India shelved plans for 42 GW of coal plants in the last three quarters of 2012. That’s nearly a fourth of existing total capacity, or 68 percent of the government’s short-term target—only 32 percent of which Coal India says it can fuel. With power-hampered growth threatened by even scarcer or costlier power, some of India’s electricity leaders are seeing their way forward in superefficiency, distributed renewables, and microgrids—and not only in rural areas.

As in China, vibrant private-sector entrepreneurship in renewables should be capable of far outpacing the state-owned industries that dominate coal and nuclear power. India, the world’s #3 windpower market, has already installed nearly four times more wind than nuclear capacity. Solar power too added 1 GW in 2012 and is taking off briskly. And of course India has huge efficiency opportunities because most of its ultimate infrastructure isn’t yet built. Projects like Infosys’s 70-percent-less-energy-using new offices in Bangalore—helped by ASHRAE Fellow and RMI Senior Fellow Peter Rumsey—are gaining wide attention. A constellation of impressive new nongovernmental efforts with businesses and governmental allies is starting to focus India’s energy policy reforms and business mobilizations.

In all, India seems to be at an energy tipping point. It is starting to comprehend its massive efficiency and renewable potential, and enjoys growing private-sector skills to capture that potential, especially if regulatory barriers can be removed. All of this as the power sector—chastened by the world-record summer 2012 blackout of 600 million people—starts to face the need for serious reforms. The main missing elements, as in China and Japan, include rewarding utilities for cutting your bill (instead of selling you more energy), and allowing demand-side resources to compete in supply-side bidding.

Of course, there are major challenges in modernizing a sprawling, disjointed sector with irregular management quality and transparency. But with so many brilliant entrepreneurs and engineers, important advances are already emerging from the bottom up at the firm, municipal, and state levels, whether led or followed by national policy. And as we’ll see in the second part of this blog, all three of Asia’s economic giants will be increasingly informed and perhaps inspired by the example of their European counterpart and prime competitor, Germany, which is now switching to a green electricity system faster than anyone thought possible.

National Geographic

Upbeat employment data in the United States also buoyed sentiment and fuelled hopes demand will improve in the world’s biggest oil consuming nation, they said.

New York’s main contract, light sweet crude for delivery in April was up 15 cents to $93.21 a barrel in morning trade and Brent North Sea crude for May gained 43 cents to $109.40.

Brent’s April contract closed 90 cents higher at $109.42 as it expired on Thursday.

A weaker dollar “helped to support crude oil prices”, said Ker Chung Yang, senior investment analyst at Phillip Futures in Singapore.

As oil is traded in dollars, the commodity becomes cheaper when the US currency weakens, prompting investors to buy, and resulting in higher prices.

Oil prices were also supported by data from the Department of Labor showing new US claims for unemployment benefits came in at 332,000 in the week ending March 9, a drop of 10,000 compared with the prior week.

“US jobless claims were the fuel for the fire… as they continued to show an improving labour market,” said a report by IG Markets in Singapore.

India Times

Oil prices were mixed in Asian trade today, with the sentiment subdued by concerns a prolonged budget stalemate in the United States could hamper recovery in the world’s biggest economy.

Prices had already slipped in New York after US crude stockpiles surged by more than eight times, the expected amount, indicating weak demand in the country.

New York’s main contract, light sweet crude for delivery in April, climbed three cents to $90.46 a barrel and Brent North Sea crude for April dipped six cents to $111.00 in mid-morning trade.

Sanjeev Gupta, who heads the Asia-Pacific oil and gas practice at Ernst & Young, said the market is worried that “the failure of the US Congress and the Obama administration to avoid the automatic spending cuts… could hobble US economic prospects in the coming months’’.

US President Barack Obama met Republican senators for a rare dinner yesterday, as he sought to end the ugly budget impasse that is clouding the early days of his second term.

Obama has recently telephoned several Republicans seen as most open to dialogue on the deep ideological rift in Washington as he seeks to find a less painful way to cut spending after the $85-billion “sequester” took effect on Friday.

The cuts to defence and domestic spending will likely cost hundreds of thousands of jobs, while economists have said 0.7 percentage points could be shaved off gross domestic product.

Prices were initially rattled yesterday on uncertainty following the death of Hugo Chavez, President of major Latin American oil producer Venezuela.

Bussiness Line

Automatic spending cuts that kicked off in the United States on Friday, pushing spot gold to its lowest level in more than a week, also continued to weigh.

“The broad theme might be gold-negative, because the spending cuts are probably taking away a bit of the froth on the idea that policymakers are spending out of control and they will keep doing so until the recovery takes hold,” said a Hong Kong-based trader.

Investors are waiting to see the impact of the spending cuts, known as the “sequester”. Although the $85 billion cuts, a fraction of the US government’s total spending of $3.7 trillion, are unlikely to become a huge drag on the economy.

Vigorous US manufacturing data, together with strong auto sales and a rise in consumer sentiment in February, suggested a pickup in economic growth, tempering interest in gold.

Recent weakness in the global market has triggered physical buying interest in Asia, particularly in China, as the spread between onshore prices and international prices widens, cushioning the fall in dollar-priced gold.

The popular gold forward contract on the Shanghai Gold Exchange was trading at 319.9 yuan a gram by 0324 GMT, or $1,599 an ounce, about a $20 premium to spot gold.

“Most likely we will see banks bringing the metal onshore to take advantage of the wide spread,” said the Hong Kong-based trader.

Spot gold inched up 0.2 percent to $1,578.01 an ounce, bouncing off a one-week low of $1,564.44 hit last Friday.

U.S. gold was up 0.3 percent at $1,577.60.

Technical analysis suggested spot gold could fall to its Feb. 21 low of $1,554.49, after a brief consolidation, as it is riding on a downward wave (5), said Reuters market analyst Wang Tao.

The exodus of investment from the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, continued. Its holdings fell to a seven-month low of 1,254.885 tonnes on Friday, in a ninth consecutive session of decline.

The overall improving outlook for the global economy has boosted risk appetite and driven investors from gold to higher-yielding assets such as equities.

“The near-term price of gold is not expected to rise much above its current level, so long as the recent bout of improved confidence is sustained and the rally in equity prices is reflective of fundamentals rather than purchasing by over-exuberant market participants,” National Australia Bank said in a research note.

Hedge funds and money managers increased their net long positions in gold in the week to Feb. 26 from a more than four-year low hit a week earlier, showing the return of some investment interest.

In contrast to a sharp decline in speculative interest in futures and options over the past month, sales of American Eagle gold coins rose sharply year-on-year in February, and silver coin sales posted their strongest performance for the month since 1986.

Arabian Business

Four industry sources familiar with the situation told Reuters that Rosneft was in talks with Chinese state firm CNPC about the borrowing, which would echo a $25 billion deal the two companies clinched last decade.

Rosneft said it was not currently in talks about obtaining a loan from Chinabut declined to comment when asked whether it may enter in negotiations at a later date.

In the previous deal, Rosneft and Russian pipeline monopoly Transneft borrowed money to help Rosneft acquire the assets of nationalized oil producer YUKOS while agreeing to build a pipeline to supply China with 300,000 barrels per day for 15 years.

This time, Rosneft wants to borrow money as it is close to completing a $55 billion acquisition of rival TNK-BP to become the world’s largest listed oil producer.

Russia’s leading oil company, controlled by the Kremlin, is considering ultimately doubling supplies to China, sources said.

“It can be a combination of delivery options. The strategic line is to increase supplies to China,” one source familiar with the situation said.

“The reason why China is willing to lend is simple. They sit on over 3 trillion of dollars in reserves and are looking to diversify their investments,” he added, referring to China’s foreign exchange reserves of $3.3 trillion.

Rosneft and CNPC declined comment.

The first loan-for-supply deal between the two companies connected directly for the first time the world’s largest energy producer and consumer.

It came after a number of energy disputes between Russia and its neighbors which cut gas and oil supplies to Europe several times, drawing criticism and calls from the European Union for diversification away from Russian energy resources.

Russian President Vladimir Putin retaliated by saying Moscow would divert more energy to Asia.

Since then Russia has been steadily increasing crude exports to Asia at the expense of deliveries to Europe with flows due to amount to around 15 percent of Russian oil exports this year via pipelines to China and to the Pacific coast.

Should deliveries to China double, the share of Russian exports to Asia will amount to over a fifth of overall exports by the world’s largest oil producer and the second largest exporter after Saudi Arabia.

‘CRAZY DEFICIT’

Energy relations between Moscow and Beijing have been, however, complicated in the past by disputes over oil shipping tariffs along the existing pipeline.

They were ultimately resolved after Russia agreed to apply a discount on supplies. The head of Transneft, Nikolai Tokarev, said this week that deliveries to China would rise over time.

“We are neighbors and we need to develop ties, especially given that China has a crazy oil deficit,” he told business daily Kommersant.

Sources said it would take time before a final deal was reached and differences over various delivery options were resolved.

Finding the needed oil resources will also be challenging as Russia is several years away from a fresh increase in output in East Siberia, the region closest to China.

“They don’t know where they can source the oil and the route issue is a significant one,” one of the sources said.

The first source said discussions centered around doubling capacity of the existing pipeline to China by building a parallel link. Volumes could be also topped up with deliveries from the Pacific port of Kozmino.

“Building a parallel link is certainly not nearly as expensive as building the first one from scratch,” he said.

A second source said a second link might be an overly expensive option and Russia could opt to increase the throughput capacity of the existing pipeline by adding pumping stations.

A third industry source said China was ready to lend as long as Rosneft agreed to ship more oil via Kazakhstan’s existing pipeline to China, which would soon be short of volumes due to depletion of some Kazakh fields.

“These discussions are under way on a working level,” Russian Deputy Prime Minister Arkady Dvorkovich said on Wednesday when asked about possible deliveries though Kazakhstan.

However, Transneft fiercely opposes the plan as it would cut its transport earnings.

Whatever the approach, funding is a pressing issue for Rosneft.

It needs to borrow up to $40 billion to complete the TNK-BP acquisition. It has managed to cover its most immediate needs by lining up a syndicated loan as well as a $10 billion financing from traders Vitol and Glencore.

But it also needs dozens of billions of dollars to launch new huge fields in Russia’s Arctic and funds to finance a $25 billion refinery modernization program.

Driven by rising incomes, imports rose from 431.2 tonnes to a 834.5 tonnes according to data from the Census and Statistics Department of the Hong Kong government.

Imports in December alone were 114,405 kilograms, a monthly record.

Demand is expected to be boosted further by the imminent launch of a gold-backed exchange traded fund in the country. Last year a ban on interbank gold trading also contributed to rising demand.

Chinese retail investors have flocked to gold because of a lack of other investment opportunities in the communist country.

Precious metal ETFs have been a massive success in North American and European markets and played a role in pushing gold to its 12th year of successive gains in 2012.

China – the world’s number one producer of gold – is also on track to displace India at the top of the gold table.

An import tax – along with a weak rupee – has led to a slump in demand in India, long the world’s number one consumer of gold.

In 2012, India’s gold imports are expected to be in the region of 800 tonnes worth over $40 billion, compared to 1,000 tonnes in 2011.

mining.com